Highmark-UPMC battle brings competitive pricing to region as new health care law dawns

Western Pennsylvania residents who obtain health insurance from government-run exchanges next year could be getting a bonus from the battle between health giants UPMC and Highmark Inc. — lower premiums than people in other parts of the state. The two insurers and Coventry are the only three companies that are selling plans in the state exchange being set up under the Affordable Care Act, known as Obamacare, introduced by President Barack Obama.

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Western Pennsylvania residents who obtain health insurance from government-run exchanges next year could be getting a bonus from the battle between health giants UPMC and Highmark Inc. — lower premiums than people in other parts of the state.

The two insurers and Coventry are the only three companies that are selling plans in the state exchange being set up under the Affordable Care Act, known as Obamacare. That's far fewer than the eight to 10 insurers in central and eastern Pennsylvania.

Typically, less competition leads to higher prices, but rates released on Wednesday by the federal government show that premiums are higher on average for residents in areas where more companies are competing for the business of uninsured people who are required to buy health care coverage.

“They're going to be the main two players on the exchange in our community,” James McTiernan, a health care consultant with Triad Gallagher, a Downtown benefits consulting firm, said of UPMC and Highmark. “They priced it as competitively as possible to gain members.”

But low premiums emphasized by the Obama administration as one of the key benefits of the law may come with a shock for some people. To keep payments affordable, they will have to juggle higher out-of-pocket costs, such as deductibles and co-payments.

According to rate data from the Department of Health and Human Services, the lowest-cost plans in the Pittsburgh region will be between 18 and 21 percent cheaper than the statewide average, depending on the level of coverage. Plans are categorized as bronze, silver, gold or platinum.

All of the plans cover the same benefits and cap annual cost-sharing expenses at $6,350 for an individual, $12,700 for families. The big difference between plans is how much cost sharing a person will have to pay. Bronze covers 60 percent of expected costs; silver, 70 percent, up to platinum at 90 percent. Bronze plans have the lowest premiums and the highest cost sharing.

Out-of-pocket costs may come as a surprise to people who have never bought health insurance.

Although the government's rate data did not include cost-sharing estimates, a study by Avalere Health released on Wednesday found that the annual deductible for a midrange “silver” plan averaged $2,550 in a sample of six states.

Although that's more than double the typical deductible in an employer-sponsored health plan, a study by the Government Accountability Office this year found that a median health plan purchased by individuals in Pennsylvania carried a $10,000 deductible.

The GAO also found that a median premium for individual insurance in the state this year was $141 a month for a 30-year-old, about 25 percent lower than the lowest premium in a mid-level silver plan.

In Pittsburgh, a hypothetical healthy 27-year-old would pay $119 a month for a bronze plan and $169 for gold. The statewide average for that same person would be $151 for bronze and $205 for gold, HHS data show. In Philadelphia, the bronze rate for the same person is $195, and $250 for the gold.

The premiums don't take into account federal tax credits that will be available to people who buy in the online marketplace and are intended to offset costs for lower-income workers. To qualify, a single person's annual gross income must fall between about $11,500 and $46,000.

Tom Tomczyk, a health care consultant with Buck Consultants, Downtown, was not surprised that premiums will be lower in Western Pennsylvania.

“Historically, Western Pennsylvania has had lower (medical care) costs than eastern Pennsylvania,” he said. “It doesn't surprise me that exchange rates would follow that pattern.”

The influence of fierce competition between Highmark and UPMC “may have something to do with the magnitude of the difference” in premiums between Pittsburgh and the rest of the state, he said.

Reimbursement contracts between Highmark and UPMC expire at the end of 2014, and UPMC has refused to renew them or negotiate new ones. Without contracts, Highmark members will have to pay costly out-of-network charges to access most UPMC hospitals and doctors.

UPMC spokesman Paul Wood hailed the premium costs as evidence that UPMC's strategy of breaking off its relationship with Highmark is leading to greater competition and lower prices for insurance customers.

“The expiration of the contract and the availability of these competitive health insurance plans have definitely made the rates much less expensive,” he said.

Highmark spokeswoman Kristin Ash said the lowest-cost plans are likely to be narrow-network health plans, such as Highmark's Community Blue, which restrict access to some hospitals in exchange for reduced premiums. She said many insurers across the country are beginning to introduce narrow-network plans in an effort to lower costs. Community Blue excludes most UPMC hospitals.

“We realize as insurers that we may have to do things differently and broad networks may not be the way,” Ash said.

The only other insurance company that will sell plans in the online marketplace is Coventry, which was acquired by Aetna Inc. this year.

While Aetna had applied to sell in Western Pennsylvania, it decided to offer only Coventry plans here, spokesman Walt Cherniak said.

Aetna, Coventry, United Healthcare and Cigna Corp. all provide health insurance to businesses in the region and have full access to UPMC. But in Pennsylvania, as in many other states, those for-profit companies have been cautious about selling to individuals under Obamacare.

The Associated Press contributed to this report. Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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